If you are paying premiums for life insurance or earthquake insurance, not using the "insurance premium deduction" in your year-end adjustment or tax return is a sure loss. The life insurance premium deduction alone gives you an income deduction of up to ¥120,000 for income tax, and combined with residence tax it can save you tens of thousands of yen a year. The key points are the difference between the new system and the old system and the easily overlooked ¥70,000 combined cap for residence tax. This article organizes the mechanism of the three categories, the calculation formulas, how to choose when combining new and old, and the earthquake insurance premium deduction, with concrete examples.
The three categories of the life insurance premium deduction (new system)
General life insurance premiums
Death insurance, endowment insurance, educational endowment insurance, etc. Income tax cap ¥40,000 / residence tax ¥28,000.
Nursing-care and medical insurance premiums
Medical insurance, cancer insurance, nursing-care insurance, etc. (contracts from 2012 onward). Income tax cap ¥40,000 / residence tax ¥28,000.
Individual annuity premiums
Individual annuity insurance with a tax-qualifying rider. Income tax cap ¥40,000 / residence tax ¥28,000.
Under the new system, the residence tax cap is ¥28,000 per category, but rather than simply adding the three to get ¥84,000, the combined cap for the three categories is ¥70,000. This is easy to misunderstand, so be careful. For income tax the cap is ¥40,000 each / ¥120,000 combined[National Tax Agency No.1140 (in Japanese)].
The difference between the new system and the old system
| System | Eligible contracts | Categories | Income tax cap | Residence tax cap |
|---|---|---|---|---|
| New system | Contracts on or after January 1, 2012 | Three categories (general, nursing-care/medical, individual annuity) | ¥40,000 each / ¥120,000 combined | ¥28,000 each / ¥70,000 combined |
| Old system | Contracts on or before December 31, 2011 | Two categories (general, individual annuity) | ¥50,000 each / ¥100,000 combined | ¥35,000 each / ¥70,000 combined |
If in the same category you have both a new contract and an old contract, you can choose among new only, old only, or new and old combined — whichever gives the largest deduction. When combining new and old, the cap for that category is ¥40,000 for income tax / ¥28,000 for residence tax. For example, if you pay more than ¥50,000 on old contracts alone, "old only" (cap ¥50,000) is more favorable[National Tax Agency No.1141 (in Japanese)].
Formula for the deduction amount (income tax)
Up to ¥20,000 a year: the full amount
¥20,001–40,000: premium × 1/2 + ¥10,000
¥40,001–80,000: premium × 1/4 + ¥20,000
¥80,001 or more: flat ¥40,000 (cap)
Up to ¥25,000 a year: the full amount
¥25,001–50,000: premium × 1/2 + ¥12,500
¥50,001–100,000: premium × 1/4 + ¥25,000
¥100,001 or more: flat ¥50,000 (cap)
For each category, if you pay premiums of more than ¥80,000 a year under the new system, or more than ¥100,000 a year under the old system, the deduction automatically reaches its cap.
A concrete example of the tax-saving effect
Residence tax: cap ¥70,000 × 10% = ¥7,000
* The actual amount varies with your income tax rate and coverage. Calculate using the "declared amount" on your deduction certificate.
Earthquake insurance premium deduction
Premiums for earthquake insurance (or, under transitional measures, old long-term casualty insurance) are eligible for the earthquake insurance premium deduction[National Tax Agency No.1145 (in Japanese)].
| Type | Income tax deduction | Residence tax deduction |
|---|---|---|
| Earthquake insurance premiums | The full amount paid (cap ¥50,000) | 1/2 of the amount paid (cap ¥25,000) |
| Old long-term casualty insurance premiums (transitional measure for contracts made by the end of 2006, etc.) | Up to ¥15,000 | Up to ¥10,000 |
* If you have both, the combined cap is ¥50,000 for income tax / ¥25,000 for residence tax. You cannot apply both the earthquake and the old long-term deduction to a single contract at the same time.
Steps for the year-end adjustment / tax return
- 1Receive your deduction certificate (around October–November). It arrives from the insurer by mail or as electronic data. Use the "declared amount (projected amount)."
- 2Fill in the insurance premium deduction declaration form. Check the category (general, nursing-care/medical, individual annuity) and whether it is new or old, then enter it in the correct field.
- 3Attach the certificate and submit it to your company (self-employed people, etc., enter it on their tax return). With a year-end adjustment, any overpayment is refunded.
Even if an employee forgets to submit it in the year-end adjustment, they can receive the deduction through a tax return (refund claim). A refund claim can be filed for up to five years from the year following that year.
FAQ
Which category do medical insurance and cancer insurance fall under?
Medical insurance and cancer insurance contracted from 2012 onward fall under the "nursing-care and medical insurance premium deduction" category. Medical insurance under old contracts from 2011 or earlier is calculated as part of the old system's "general life insurance premium deduction."
Is the residence tax deduction up to ¥84,000 (¥28,000 × 3)?
No. Under the new system, the residence tax cap is ¥28,000 per category, but the combined cap for the three categories is ¥70,000. For income tax the cap is ¥40,000 each / ¥120,000 combined.
How do I calculate a category that has both a new contract and an old contract?
You can choose among new only, old only, or new and old combined — whichever gives the largest deduction. If the premiums are large on old contracts alone, "old only" (cap ¥50,000) can be more favorable.
Is any individual annuity insurance eligible for the deduction?
What is eligible for the individual annuity premium deduction is a contract with a "tax-qualifying rider." Lump-sum-payment contracts and those that do not meet the requirements may be treated under the general life insurance premium deduction.
Summary
Reference links (sources)
This article is based on the following published materials from the National Tax Agency (neutral, primary sources). Deduction systems may be revised, so please check the latest information.
- National Tax Agency No.1140 Life insurance premium deduction (in Japanese)
- National Tax Agency No.1141 Insurance contracts eligible for the life insurance premium deduction (in Japanese)
- National Tax Agency No.1145 Earthquake insurance premium deduction (in Japanese)
- National Tax Agency No.1146 Insurance contracts eligible for the earthquake insurance premium deduction (in Japanese)
* This article is general information, not tax advice. For category determinations and calculations, please confirm with the details on your deduction certificate, the National Tax Agency's materials, or a tax office.